Potential End of Non-Compete Clauses?

Employees across the country seem to be leaving their current companies for what they perceive to be greener pastures with other companies at a high rate. However, employee contracts can, and depending on the industry, often do, include mechanisms that restrict the type of company an employee can join upon leaving their original company. This type of restriction is referred to as a non-compete clause.

Non-compete clauses restrict the ability of an employee to freely join a new company by limiting the type of company an employee can join, as well as implementing a timeframe for how long the clause is valid. For example, if an employee is in the technology industry and works for a company creating computers, then a common non-compete clause would restrict that employee from joining another company that creates computers for a period of time, which could be a handful of years.

This type of restriction can force employees to join completely different fields to avoid violating the non-compete clause. However, a proposed rule by the Federal Trade Commission could put an end to this practice by restricting employers from using non-compete clauses. This is a broad-based measure that could lead to groundbreaking changes in the labor force. Ideas would flow freely in inter-industry employee moves, as well as allow employees to freely move around in their industry without fear of being in legal trouble for violating a non-compete clause.

There are supporters and detractors of this proposed rule, with supporters focusing on the freedom of movement and potential to seek more lucrative pay, while detractors are concerned with allowing employees to leave without any restriction, and place an emphasis on a company developing talent in-house.

A key aspect of this proposed rule is that it would not simply be a forward-looking measure that would not allow non-compete clauses in future contracts; this rule would also nullify any and all existing non-compete clauses, and require employers to tell their employees that the clause is invalid moving forward.

If you have a non-compete clause in your employment contract and have concerns regarding the clause, the attorneys at Hannah Sheridan & Cochran are ready and able to assist.